SEC Commissioner: True Decentralized Projects Pose a Challenge to Crypto Regulation

A commissioner with the U.S. Securities and Exchange Commission (SEC) says that true decentralized projects pose a challenge to crypto regulation. Noting that “decentralized finance carries within itself inherently some ability to self regulate,” the commissioner said, “we need to take that into account as we design a regulatory system.”

SEC Commissioner Peirce Discusses Crypto Regulation and Decentralized Finance

SEC Commissioner Hester Peirce talked about cryptocurrency regulation in an interview with Yahoo Finance, published last week. Peirce is also known in the crypto community as “crypto mom” for her knowledge and support of the crypto space.

She was asked about whether the SEC has any trouble catching up with developments in the crypto space and protocols which are advancing and changing very quickly on a daily basis.

“There is certainly difficulty on the part of a regulator to stay on top of developments in defi [decentralized finance] and crypto more generally,” Peirce admitted. However, she noted:

People shouldn’t assume that the SEC can only focus on one thing. The SEC has a lot of resources and can go after a lot of things simultaneously.

“So, be aware of that, and you need to be thinking about whether the securities laws apply to what you’re doing and consulting with lawyers when necessary,” she recommended.

The commissioner added: “The decentralized world is one that is very new to us because we are used to dealing with large, usually large, centralized intermediaries. So true decentralized projects do pose a challenge.” Peirce warned:

I think what I would caution people to be aware of is that sometimes something claims to be decentralized and isn’t, and there is actually a centralized entity, and I think certainly regulators will be looking to that centralized entity.

SEC Chairman Gary Gensler also similarly said that many platforms claiming to be decentralized were actually centralized. He told Senator Elizabeth Warren in September that many platforms “are only decentralized in name only,” citing that “There is a user agreement.” In addition, he said many tokens listed on cryptocurrency exchanges are actually securities, telling Congress that they needed more regulation.

Peirce further explained:

Decentralized finance carries within itself inherently some ability to self regulate. And I think we need to take that into account as we design a regulatory system.

Commenting on cryptocurrency regulation, the commissioner said, “It is disconcerting to me that for three years now I’ve been asking for regulatory clarity and we can’t seem to provide any.”

She added: “I think this is really becoming a huge barrier to this industry being able to develop in the way that’s safe but also in a way that allows innovation to happen. And it’s a real shame to me that we are not just taking up the mantle as regulators to develop a regulatory framework.”

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